In finance, equity refers to assets after the deduction of all liabilities. The remaining value after these deductions is what’s called equity.
For the shareholder or stockholders equity, investors generally look at their stake in the company, and the number of liabilities carried by the company.
In small-scale scenarios, equity could also refer to the personal finances of something. This is for example when someone owns a $1,000,000 home, but has a mortgage of $350,000 on it. That is then to say that the owner of the home has $650,000 equity on their property.
Equity can sometimes be a tricky measurement of wealth and financial well-being, as it can be both tangible and intangible.
Many people tend to invest tangible assets, those they can physically see and touch. Intangible assets are those you can not physically see, hold or touch.
From an accounting perspective, tangible assets, for both businesses and personal wealth can include property, inventory, supplies, stocks, bonds, equipment, cash, accounts receivable, or land.
Those assets can be used as collateral against debt or can generate additional income for the owner.
Some intangible assets can include copyrights, customers, patents, trademarks, and brand recognition.
Liabilities can be accounts payable, interest, loans, taxes, unearned revenue, warranties, or mortgages. These can be assigned to both companies or an individual depending on their financial position.
Usually, it is preferred to have a lower set of liabilities to ensure higher equity on your owned assets.
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